Swiss National Bank (SNB) Monetary policy decisions 2009

Since the September assessment, signs of a recovery in global economic activity had been gathering strength. The normalisation of conditions on the financial markets, as well as the monetary and fiscal stimuli, had prompted a recovery in manufacturing output. However, in a number of countries capacity utilisation was still low and access to credit remained difficult. Moreover, it was likely that the subdued labour market situation would weigh further on consumption. The SNB therefore kept its 2010 growth forecast for the US unchanged, but revised it slightly downwards for Europe (1.1%).

The Swiss economy, too, was on the road to recovery at the time of the assessment, with GDP having risen in the third quarter. Exports benefited from the recovery in global demand, making an improvement in the situation of the manufacturing industry probable. In view of the under-utilisation of production capacity, by contrast, there was unlikely to be any revival of equipment investment for the time being. In addition, consumption growth was expected to be held back by weakly growing income. For 2010, the SNB projected GDP growth of between 0.5% and 1%, following a figure of approximately –1.5% for 2009.

Having risen strongly until April 2009, base money declined again, while M1 and M2 showed substantial growth up to the time of the assessment. M3 growth, which had been modest for a long time, accelerated. This was a reflection of the public’s increased preference for liquid assets and was thus no cause for concern.

Growth in mortgage lending rose to 5.1% in the months prior to the assessment. Although growth in other lending was slightly lower, there was nevertheless no credit crunch in Switzerland.

The export-weighted external value of the Swiss franc had increased slightly since the previous assessment, mainly as a result of the weaker US dollar. Against the euro, by contrast, the Swiss franc remained stable.

At the time of the assessment, inflation was still negative, largely as a result of fluctuating oil prices and the associated base effect. The economic outlook suggested, however, that inflation would turn positive from the beginning of 2010.

Against this background, the National Bank decided to leave the Libor target range unchanged at 0.0–0.75% and the Libor at 0.25%. It announced that it would still provide the economy with a generous supply of liquidity, but would discontinue its purchases of Swiss franc bonds issued by domestic private sector borrowers. It would also continue to act decisively to prevent any excessive appreciation of the Swiss franc against the euro. In addition, the SNB pointed out, both to banks and to firms and households, the risks inherent in a relaxation of discipline in real estate financing.

The inflation forecast published together with the interest rate decision was based on a three-month Libor of 0.25%. Inflation rose in the short term, as a result of the base effect linked to the trough in oil prices reached one year earlier. The forecast suggested that inflation would fall back again over the course of 2010, despite the fact that economic growth was expected to pick up. From the beginning of 2011, the forecast showed a clear upward trend, with inflation projected to breach the 2% mark in the first half of 2012. This indicated that the Libor would have to be raised sooner or later.